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The Billionaire Who Owns New York
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Dec 11, 2024
This secret billionaire created a powerhouse that now owns New York. ✉️ Learn the secrets of legendary traders and investors: https://bit.ly/47pcTJT --- Videos are intended strictly for information, education, and entertainment purposes. Do not base any investment decisions based upon these materials. Please read the disclaimer: https://analyzingalpha.com/disclaimer
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0:02
it's an ordinary night on Broadway as theater goers rush to their seats eager to enjoy a Timeless production of in the
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heights but for one man the real drama isn't unfolding on stage it's gripping
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him like a vice directly in his hands the final draft of a 221 page prospectus
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delivered right before the show that will result in Wall Street either catapulting his dreams into reality so
0:27
how do you win the game or shattering them against the Rocks the stock market is opening in the red this morning after
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a rough finish last week on a weaker than expected jobs report the stakes a
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staggering $4 billion in the validation he's longed for since he was a kid as
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the actors on stage sing their final song it's Steven schwarzman who prepares for the performance of his
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[Music] life the story starts in 1947 in
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Philadelphia Pennsylvania where Steven schwarzman was born into a middle class Jewish Family his father
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Joseph schwarzman owned a family business called schwartzman's curtains and linens where he sold you guessed it
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curtains and linens it was here that young Steven first dipped his toes into the business World sure it wasn't quite
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Wall Street but every Finance year has to start somewhere right Steven was only
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10 years old when he started working at the store and earning 10 cents an hour wasn't exactly enough to earn him a
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title in Forbes Magazine yet but it was clear from the start that Steven was an ambitious young man who always wanted
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more when he asked his grandfather for a 150% raise of course Grandpa schwarzman
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turned him down Steven often messed up calculations on how much fabric was needed for drapes so there was no way he
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was getting 25 cents an hour but this didn't deter Steven's Drive in fact he
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saw a lot of potential for schwartzman's curtains and linens young Steven figured
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why stop at selling fabric to the fine folks of Philly why not expand and have stores all over the country yet when he
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brought the idea up to his father Mr schwarzman was less than thrilled content with the humble life he built
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for himself he had no desire to turn the shop into a chain and while Steven loved
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his dad he couldn't have been more different from him in this regard you'll see just what I mean by that lader it
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was hard for me to imagine how a smart person wouldn't want to do that cuz it was just right there but during his
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youth St would continue selling linen handkerchiefs to customers until it was time to go off to
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college his first choice the prestigious Harvard University though it seems
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Steven might have been dreaming a little too big he was rejected but what does a motivated dreamer like schwarzman do
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calls up the director of admissions to warn him you've made a mistake but Harvard didn't yield so
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Steven was forced to settle for his second Choice Yale another respectable Ivy leak school with a Discerning
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acceptance rate now in High School St had excelled in all his classes even earning himself
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the title of student council president but Steven initially struggled during his time at Y and even had to seek out
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extra help from a trusted English Professor but don't feel too bad for our protagonist it wasn't long before he was
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back on track earning straight A in a coveted spot on the dean list
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in 1969 Steven graduated yil with a degree in social sciences now you might
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be thinking wait social sciences why not Finance well Steven had always enjoyed
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studying people and he didn't know that one day he'd be the king of capital when he chose his major I didn't even take an
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economics course uh at Yale I I frankly wasn't much good with math in fact it
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wasn't until after graduating that he took his first shaky steps into the world of Finance Steven landed himself a
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gig at an investment banking firm called Donaldson lkin and Jett he was offered a $10,000 salary but in true schwarzman
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style negotiated it up to 10,500 however his time at this firm was
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relatively short while Steven enjoyed having an office with a beautiful view of Manhattan he was discouraged by wall
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Street's endless roles and regulations one of his first tasks on the job was invest investigating a new
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chain of German style sausage restaurants naturally schwarzman with his insatiable appetite dove in head
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first visiting their headquarters in probing for relevant information but his enthusiasm quickly
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turned to bewilderment when his boss reprimanded him for violating SEC regulations a role Steven thought would
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have been nice to know in advance at the time Steven thought to himself Wall Street is crazy and
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eventually quit DL and J to serve in the Army Reserves but schwartzman's time
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serving his country wouldn't last long he had bigger plans in mind after
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fulfilling the brief military obligation schwarzman motivated by a desire to prove himself decided to go back into
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the frenetic world of Wall Street he applied to Harvard Business School once again only this time he got
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in and after graduating in 1972 schwarzman wasted no time putting his
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education to practical use that very same year he joined Leman Brothers a highly prominent Global
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investment firm where almost all the big shot investors were employed at the time
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but it was at this firm that schwarzman would realize just how competitive the world of Finance could be early on for
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example he wrote a detailed 68-page report complete with appendices and
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footnotes but not long after submitting his work he was stunned by an angry phone call from his Superior Herman KH
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Herman criticized schwarzman for one typo on page 56 before aggressively slamming down the phone and it sort of
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went like this uh this is Herman KH calling is
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this Steve schwarzman needless to say this made it clear there would be no room for mistakes if schwarzman wanted
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to prove himself in the industry so did he give up no way schwarzman once said
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the resilience you exhibit in the face of adversity rather than the adversity itself will be what defines you as a
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person in the next year 1973 his luck started to change when Pete Peterson
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you'll want to remember this name became the CEO of Leman Brothers he was um a
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guy who um is very smart uh Sumi process
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thinking I was uh quicker Peterson would work closely with schwarzman and even
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save him from getting fired just 5 years later the story behind that in 1978 schwarzman
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received a call from Ken Barnaby CEO of Tropicana the company was considering a buyout offer and Barnaby wanted
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schwarzman in Florida the very next day so schwarzman hopped on a plane and met
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with Barnaby at 7:30 a.m. the next morning he quickly learned about beatric food's $488 million offer for Tropicana
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then he had just 1 hour to prepare an analysis of three different payment structures before a big
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meeting in the meeting schwarzman presented his recommendations to five board members including Tropic canis
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founder in the end the board chose a mix of convertible preferred stock and cash
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and schwarzman left for New York feeling like he pulled off the biggest win of his career
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yet however the following Monday schwarzman received an angry call from Peter Solomon leman's Vice chairman
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Solomon claimed that he had been working on a deal to buy Tropicana and threatened to have schwarzman
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fired one anxious schwarzman called up Pete Peterson to explain the situation and ask for help luckily his mentor of
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half a decade saved the day and schwarzman was relieved to learn he wasn't getting the boot from Leman
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Brothers just yet but schwartzman's tenure at Leman Brothers while successful wasn't to last
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forever the arrival of Lou luxman at lhan sparked a power struggle between
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Lou and Pete to avoid a civil War Peterson made the difficult decision to
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leave though this shift in leadership would have drastic consequences for the company you see under gluckman's
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management Leman found itself in trouble the situation became so severe that American Express actually stepped in to
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buy out the firm ironically it was schwarzman himself who helped facilitate this deal with the family of his own to
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consider schwarzman decided it was time to move on from his career at Leman Brothers his departure shirt marked the
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end of an error for both him and the company but it would also Mark A New Beginning for him and his good friend
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Pete [Music]
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Peterson as the curtain fell on schwartzman's Leman brothers act a new and even more ambitious production was
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about to begin it all started in Peterson's East Hampton home where schwarzman and his former Mentor began
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discussing the next chapter have you ever had an idea you just couldn't shake
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well that's exactly what happened it wasn't long before schwarzman and Peterson began fantasizing about
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starting their own firm the duo began holding daily meetings at the Mayfair hotels Courtyard restaurant over coffee
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and strategy sessions they assessed their combined skills experience and reputations the building blocks of what
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would be their future company you see their goal wasn't just to create another investment firm but a
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lasting institution that would stand a test of time unlike lean Brothers what
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we did is we sat around and said okay we're going to start a business let's start something unique naming their
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brainchild was a challenge at first but they ended up going with Blackstone a clever nod to their surnames Schwarz
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meaning black in German and Peter's son translating to Stone in Greek with only
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$400,000 in starting Capital 200,000 each they started Blackstone with a focus on private Equity a field they
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believed held great potential so where did these two first setup shop where else than the financial
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capital of the world that's right Blackstone had its humble beginnings in New York City a modest 3,000 square ft
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in the seum building it wasn't much but it was a start and more importantly it
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was theirs in this new Venture schwarzman took on the role of CEO it was the beginning of what would become
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one of the most significant chapters in his career and indeed in the history of Wall Street in 1985 schwarzman and Peterson
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announced their company's arrival with a full page ad in the New York Times and just like that Blackstone was born a
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financial Juggernaut in the making ready to make waves on Wall Street for decades to come but not so fast the waves
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schwarzman would make weren't immediate instead we could better describe the firm's start as a slow trickle you see
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schwarzman and Peterson soon realized that naming the company was one thing but getting it off the ground was quite
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another they needed money which meant they needed other investors to get excited about Blackstone and invest in
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their dream so how'd they do it well there was no such thing as Twitter or
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social media marketing yet so they had no choice but to do it the oldfashioned way schwarzman and Peterson sent out
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over 400 letters to their contacts introducing their new firm with an enthusiasm of proud parents
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but instead of a flood of business opportunities and investors begging to invest they mostly received polite
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congratulations and the jobs they did manage to land were hardly the stuff of Wall Street Legend the squid Beach Nut
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Company threw them a bone with a $50,000 advisory job Pocket Change in the world of High Finance Armco a steel company
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providing another small gig it was a start but hardly the Roaring takeoff schwarzman and Peterson had envisioned
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undeterred they set up 18 meetings with potential investors surely they thought
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once they got face tof face with these Financial Big Wigs the money would start rolling in and they could get Blackstone
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off the ground but these meetings including one with Delta Airlines mostly
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ended in disappointment it was becoming clear that building a financial Empire wasn't going to be as easy as writing a
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clever company name on letterhead small little companies like this uh were not
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successful in inv banking in fact they didn't exist at all but all that changed
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in 1987 when schwarzman found himself face to face with presedential life's Vice
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chairman their meeting resulted in presential life taking a $100 million
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gamble on Blackstone the moment they'd been waiting for and wouldn't you know it once credential opened its wallet
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everyone else wanted a piece of the action too with blackstone's Newfound clout
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schwarzman was ready to make his grand entrance into the big stage and boy did he pick a doozy for his
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debut blackson's first big investment none other than USX formerly known as us
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steel you see schwarzman was aiming to snag a controlling 51% stake in this
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industrial giant but this wasn't just any old purchase he and his team were plotting a
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leveraged buyout which meant they were planning to use borrowed money from a bank to fin the deal but here's where
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things got tricky schwarzman found himself knocking on Bank door after Bank
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door only to face rejection after rejection unfortunately for schwarzman banks during this time had some serious
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concerned about the steel industry for a moment it seemed like blackstone's luck was finally changing when JP Morgan
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showed interest but their terms were to put it nicely less than
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satisfactory this was too bad schwarzman was desperate for the validation of working with a big Bank like JP he knew
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how much street cred Blackstone could get by collaborating with one of the biggest names in the game but he had
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another financial institution Chemical Bank on the line and while they weren't as big as JP Morgan they were willing to
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provide better terms in full underwriting so the man who'd once been
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rejected a 15c pay raise found himself rejecting one of the wall Street's biggest banks sorry JP Morgan in the end
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Blackstone took chemical Banks money and put up $13.4 million in equity with a
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USX chipping in $125 million in Vendor
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financing it was a Highwire act but schwarzman was ready to put on a show
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and what a show it was within 2 years Blackstone had nearly quadrupled their
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Equity but that was just the opening act by 2003 the total return would grow
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to 26 times their initial investment a jaw-dropping 130% annual return and just like that
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Blackstone had announced their arrival on Wall Street with all the subtlety of a fireworks
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display and from there on schwarzman lived happily ever after just kidding
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you know what they say you've got to kiss a few frogs before you find your prince or in this case lose a few
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million before you make your billions and this would become evident when Blackstone made its third biggest
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investment and its biggest mistake yet with a company called edcom like schwartzman's first deal
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Edgecomb was in the steel business and he was hoping that this buyout would be just as promising but you have to understand one
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good deal doesn't make you a stock market Pro in the early days Blackstone was still finding its footing and like a
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toddler learning to walk the company had lots of enthusiasm but a lot less coordination in fact at this point
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schwarzman barely had had any risk management processes in place a mistake that would end up costing him big time
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you see as the price of steel went down Blackstone took a huge hit on its Edgecomb investment and as you can
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probably imagine the aftermath wasn't pretty in fact schwarzman got a call
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from an angry investor that would haunt him for years to come the tongue lashing he received made his previous call with
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Herman at Leman Brothers looked like a love letter and as this irate investor words
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hit home schwarzman felt his face flush red fighting back tears of frustration and
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embarrassment but from This Bitter experience came a valuable lesson and a sacred vow he swore that he would never
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lose money in this fashion again he even kept a makeshift Tombstone of the failed
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deal on his desk for decades a daily reminder of the costs of complacency but here's the
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million-dollar question or in this case the billion dooll question could schwarzman keep that vow or would the
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Cutthroat world of Wall Street chew him up and spit him out like so many before him it's a big question to answer and
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we'll get there but first let's talk about schwartzman's next steps finding blackstone's bread and butter that's
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right it wasn't until the early '90s that Blackstone started investing in what would become the company's primary
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source of Revenue real estate we own um jeez hundreds of billions of dollars
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of real estate so so what made schwarzman a man with no experience in
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real estate get into buying property well as he once said to be successful
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you have to put yourself in situations and places you have no right being in and given the economic climate in the
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late ' 80s and early '90s schwarzman saw an opportunity to sail Blackstone into new
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Waters you see the US real estate market had just experienced a huge downturn The
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Crisis began when Savings and Loan associations across America caught up in a nationwide building boom overextended
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themselves with risky loans in response to the growing problem the federal government established the resolution
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trust Corporation in 1989 the goal was to liquidate the assets mortgages and
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properties tied to these troubled loans but it didn't work because when the country ended a recession in 1990 the
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value of these newly constructed homes and offices plummeted this put the RTC under intense
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pressure to sell these assets off quickly and at heavily discounted prices
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you see where this is going yet schwarzman realized he could snap up these properties for a bargain and yield
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potentially massive returns in the future acting on this Insight schwarzman partnered with Goldman Sachs to make
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blackstone's very first real estate investment Garden Apartments in Arkansas and East Texas at the time schwarzman
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couldn't have predicted the full impact of this decision but it was a good one as real state would grow to become
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blackstone's largest business segment and since its first property investment
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Blackstone has cast a wide net in the real estate market we're not just talking about a
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few apartments here and there no they've got their hands on everything from Swanky hotels and sprawling Office
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Buildings to hospitals and student housing let's put it this way if it's got four walls in a roof chances are
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Blackstone has invested in it but even while ring high on blackstone's real estate successes
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schwarzman still wasn't content as a new millennium dawned he began setting his sites on the most
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ambitious goal to date taking Blackstone public now what does it mean to take an
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investment firm public this means Blackstone would transform from a private PE firm into a
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publicly traded entity opening its stores to outside investors and expanding its overall
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reach for schwarzman a man who had faced his fair share of rejection this move was fraught with risk going public meant
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inviting the world to scrutinize Blackstone to hold a magnifying glass up to its inner workings and potentially to
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reject it on a grand scale the stakes were higher than even before schwarzman
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and his team poured days into drafting the final prospectus a document that would be blackstone's introduction to
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the world detailing every aspect of the company's operations financials and future
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plans the final dra draft arrived with impeccable dramatic timing just as schwarzman was about to enjoy a night at
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the theater in the Heights was Broadway's latest hit but for Schwartzman the real show was in his
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hands all 221 pages of it as the show started schwarzman began
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reading the prospectus under dim lights but eventually took to the lobby to
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finish after his final read through he thought what a marvelous company I'd buy
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stock in a minute it's the night of the IPO pricing and schwarzman returns back to his empty
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Manhattan apartment he enters relaxation mode after a long day and changes in
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comfortable Ensemble jeans a polar shirt and slippers the king of capital was for a
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moment just a man in need of a quiet evening almost on autopilot and with his
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TV dinner freshly microwaved he flicked on the TV only to find himself face to
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face with himself CNBC was running non-stop coverage of blackstone's IPO too drained
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to change the channel schwarzman sat there listened to experts compare his company to Google wondering if he'd ever
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escaped the madness and as Dawn broke on blackstone's very first public trading
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Day schwarzman made a surprising Choice instead of heading to the stock exchange to ring the opening bell a Wall Street
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tradition he delegated the task to Pete Peterson and Tony James Steven
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schwarzman the man of the hour himself self chose to retreat to the quiet of his office the usually bustling
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Blackstone corridors were empty as he made his way to the conference room in
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solitude schwarzman turned on CNBC watching as the market opened and
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Blackstone began its life as a public company the coverage was relentless interviews he couldn't remember giving
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analysts dissecting every aspect of the IPO now you might be wondering why all
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the fuss well this wasn't just any old IPO we're talking about one of the
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largest and most anticipated public offerings in the US history at the time in its Market debut blackstone's shares
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had jumped an impressive 133% and Steven schwarzman was the name on everyone's
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lips but after an hour of watching it all became too much schwarzman reached for the remote and abruptly shut off the
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TV in the sudden silence the enormity of what he had achieved and what lay ahead
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finally sank in the IPO was no longer a prospect or a plan it was reality and
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schwarzman was at the helm of a new era for Blackstone but what would that new era
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look like well let's rewind a bit and look at the economic landscape leading
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up to the IPO you see Blackstone was stepping onto the public stage just as the curtain was
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about to fall on some of the largest financial institutions in the world in February 2007 Freddy Mack formerly known
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as the federal Home Loan mortgage Corporation sent shock waves through the credit Market when they announced they
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would stop purchasing subprime loans but why well subprime loans were the matches
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that Lit the financial Firestorm these were mortgages handed out to folks with shaky credit people who on paper looked
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more likely to miss payments for years Banks had been packaging these loans into neat little bundles called mortgage
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back Securities and selling them off to unsuspecting investors of course this greed was only creating a housing bubble
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that was bound to burst and as subprime homeowners started predictably defaulting on their loans it marked the
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beginning of America's greatest recession since the Great Depression but the real wakeup call for America came
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when be Stern's hedge funds imploded suddenly it wasn't just Financial insiders who were worried the entire
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country started to realize we were sliding into an economic crisis even the
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big players weren't immune banking giants like JP Morgan Bank of America in city names that had seemed as solid as
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the vaults they guarded were struggling to roll over commercial paper in layman's terms they were finding it hard
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to secure short-term loans to keep their daily operations running smoothly and then came the day that would be etched
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in financial history September 15th 2008 Leman Brothers a 158 year-old
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institution that had survived two world wars and the Great Depression filed for bankruptcy it was like watching a
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financial Titanic sink and it sent shock waves through Wall Street and Beyond so
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how did schwarzman navigate Blackstone through these turbulent times well this wasn't his first rodeo with a real
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estate crisis and schwarzman was well positioned and prepared sitting on $4 billion in cash from the IPO in a 1.5
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billion revolving credit line he was prepared to snatch up assets from distress for a later profit but of
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course despite his preparation Blackstone wasn't entirely immune to the crisis during this stressful time their
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share price plummeted from $31 at IPO to a low of
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$3.55 to make matters worse in the last quarter of 2008 the value of blackstone's Assets in their private
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Equity portfolio was slashed by 20% and their real estate down by a whopping 30
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to make matters even worse JP Morgan slashed their credit line in half yet as
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2008 Drew to a close schwartzman's instincts told him the worst had passed on October 15th while speaking at Munich
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Technical University he was faced with a stark question would we survive
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schwarzman boldly declared the financial crisis over and was met with gratitude and
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Applause but as he left the auditorium the weight of his words hit him in
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sitting in the car to the airport schwarzman felt sick to his stomach he had now said it publicly and he knew
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that he had better be right little did he know schwartzman's preent handling of
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the crisis would Garner attention from more than just other investors in banks in 2012 schwarzman received a phone call
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out of the blue expecting a business partner or perhaps his broker but the voice on the other end of the line tells
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him it's the president confused schwarzman asks the president of what
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and surprise surprise it's not just the president of the local Golf Association it's Barack Obama the president of the
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United States Obama cuts to the Chase and asks for schwartzman's help turns out even
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the leader of the Free World sometimes needs a hand with budget negotiations and who better to call than
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the man who turned 400,000 into an Empire of course schwarzman agreed to
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help he spent the next week communicating with other leaders and the president himself proposing compromises
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about tax increases but schwartzman's Fay into politics wouldn't just end with the
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Obama Administration when Trump took office schwarzman continued to work in the political arena in 2018 alone he
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made eight trips to China becoming a sort of unofficial intermediary in trade negotiations between China and the
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US uh the US keeps changing its views uh the Chinese keep changing their views uh
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you know I I I've been like in the middle of this thing so if you had any question about how powerful you can get
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from running a firm like Blackstone there's your answer a whole
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lot fast forward to today and Blackstone isn't just another actor on the financial stage it's practically the
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star of the show Steven schwarzman the man who started it all has seen his own
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fortunes rise along with the companies his net worth has jumped to over $40
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billion he's gone from Counting pennies in his father's Curtain Shop to Counting billions in his Wall Street
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Empire and even after his longtime partner Pete Peterson stepped down schwarzman has continued to stay at
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blackstone's Helm wearing the hats of chairman CEO and co-founder under schwartzman's
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leadership blackstone's financial performance has been nothing short of remarkable they managed over 1 trillion
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making it the largest alternative asset manager in the entire world and earning schwarzman the nickname the king of
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capital but for schwarzman it isn't all about the money in 2013 he founded the
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schwarzman Scholars Program a move that showcases his commitment to Global Education and Leadership this initiative
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offers a select group of students the opportunity to earn a one-year master's degree in global Affairs at singua
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University in Beijing China every summer schwarzman makes a journey to Beijing to speak as a mentor
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and inspiration to the graduating class of schwarzman Scholars for a man who's seen it all in
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the world of High Finance you might think commencement speeches would be old hat but according to Steven speaking at
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the schwarzman scholars graduation has become one of his favorite annual Traditions it's a reminder of why he
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started this program in the first place to nurture the next generation of global problem
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solvers during his annual address shortsman doesn't focus on balance sheets or investment strategies instead
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he emphasizes a message that served him well throughout his career resilience in
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the face of rejection is what truly defines a person as he presents each deploma and
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Shakes the hands of every graduate who crosses the stage shortsman can't help but wonder what's the next
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ACT but for a man who's overcome unimaginable obstacles he knows the
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answer is both thrilling and simple who knows schwarzman may have built an
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empire in New York City but our next billionaire bought the entire nation
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don't miss our reveal on America's True economic Puppeteer watch now
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